Inside Health

Alaska Suit Against Lilly Is Settled

By ALEX BERENSON

Published: March 27, 2008

The prospect of a pending Supreme Court case that could sweep away many lawsuits against drug companies loomed over Alaska's decision to settle the state's suit against Eli Lilly over the schizophrenia drug Zyprexa, lawyers for Lilly and the state said Wednesday.

Alaska had sued to recoup medical bills it said were generated by Medicaid patients who developed diabetes while taking Zyprexa. But on Wednesday it agreed to settle for $15 million -- a fraction of the hundreds of millions of dollars in damages that Ed Sniffen, Alaska's senior assistant attorney general, had said the state was seeking when the trial opened three weeks ago.

On Wednesday, though, Mr. Sniffen said he was satisfied with the deal, in which Lilly did not admit wrongdoing.

''It's a good settlement,'' Mr. Sniffen said. ''Probably not a great settlement, but I think it's a good settlement.''

Good, at least, in light of that looming Supreme Court case. Mr. Sniffen noted that in October 2008, the Supreme Court is expected to hear Wyeth v. Levine, in which the drug maker Wyeth argues that federal laws bar, or ''pre-empt,'' most state court lawsuits filed by patients who say they were injured by drugs they have taken.

Based on last month's 8-to-1 Supreme Court ruling in favor of pre-emption in a similar case about medical devices, the court is assumed to be leaning in favor of the drug industry in the Wyeth case. And so plaintiffs' lawyers and state attorneys general are worried that they could have many of their pending claims dismissed when the court decides Wyeth.

Even cases that have already reached trial could be vulnerable, since drug makers almost always appeal jury verdicts against them, extending cases for months, if not years.

''We had this issue with the Supreme Court deciding pre-emption this fall that could have completely unwound any victory we might have had,'' Mr. Sniffen said. Nina Gussack, a lawyer for Pepper Hamilton, which represented Lilly, agreed that pre-emption concerns had played a major role in the settlement.

''The state took a very strong and hard look at their case, and recognized that even if they were successful, they had a substantial chance of losing their case on pre-emption grounds,'' Ms. Gussack said.

Given the fact that Alaska has fewer than 700,000 residents, and only 6,300 Medicaid patients taking Zyprexa, the $15 million payment is larger than it first seems.

But the private lawyers Alaska hired to represent it at the trial said Wednesday that they were unhappy that the state had agreed to settle. They said they believed that the jury had understood the medical evidence and the Lilly marketing documents presented to it and was ready to rule in their favor.

''The settlement was done exclusively by the attorney general without our input,'' said Tommy Fibich, a lawyer from Houston who was one of the outside attorneys hired by Alaska. ''As a lawyer, I feel we really have not been treated well.''

Still, Mr. Fibich said he understood the state's concerns about pre-emption. He added that he was worried that without the threat of lawsuits in state courts, drug makers would be even more aggressive about hiding risks and promoting drugs for unapproved uses.

Internal Lilly documents presented at the trial indicated that company executives had played down Zyprexa's health risks to doctors and had encouraged its use for off-label conditions like Alzheimer's disease.

''If you think these guys speed now, wait and see what happens when they get pre-emption,'' Mr. Fibich said.

Zyprexa helps calm the hallucinations and delusions associated with schizophrenia and bipolar disorder. The drug is widely used, with sales of $4.8 billion last year, about half in the United States.

But Zyprexa can cause severe weight gain, blood sugar changes and cholesterol problems, and it has been linked to diabetes.

The impact of the Alaska settlement on Lilly's other legal problems over Zyprexa is not yet clear. Nine other states have sued Lilly with claims similar to those made by Alaska. Another 33 have not yet sued but are investigating the company in a joint action and seeking a single settlement of their claims.

At the same time, federal prosecutors in Pennsylvania are investigating Lilly's marketing of Zyprexa and whether the company hid Zyprexa's dangers from doctors and the Food and Drug Administration.

If the company does seek a broad settlement to resolve all the state and federal investigations at once, the $15 million payment to Alaska -- considered per patient-- could represent a benchmark for broader talks.

If it does, Lilly might need to pay billions of dollars to resolve the bigger cases, since more than 10 million people in the United States have used Zyprexa.

Lilly and the prosecutors in Philadelphia have already discussed a settlement of the federal investigations that would require Lilly to pay $1 billion to $2 billion, according to people who have been briefed on the talks.

At this point, though, none of the remaining lawsuits are likely to reach courtrooms before the Supreme Court decides the Wyeth pre-emption case -- and potentially knocks out many of the remaining state lawsuits.

At the same time, Lilly will argue that the Alaska settlement should not represent a benchmark for future cases, said George Lehner, a partner at Pepper Hamilton. Mr. Lehner said Wednesday that Alaska consumer protection laws were unusually favorable to plaintiffs, so other states' claims would be worth less per person than Alaska's.

Alaska and Lilly discussed a settlement before the trial began, and mediation efforts resumed last week, according to the statement announcing the settlement.

Shares of Lilly rose 2 cents, to $50.19.

Nina Gussack, left, and George Lehner, lawyers for Eli Lilly, in a discussion with Tommy Fibich, a lawyer for the State of Alaska. (PHOTOGRAPH BY AL GRILLO/ASSOCIATED PRESS) (pg.C4)